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foundations macroeconomics
Macroeconomics For Today 11th Edition Irvin B. Tucker - Solutions
According to supply-side fiscal policy, reducing tax rates on wages and profits willa. create demand-pull inflation.b. lower the price level but may trigger a recession.c. result in stagflation.d. reduce both unemployment and inflation.
Unemployment compensation paymentsa. rise during a recession and thus reduce the severity of the recession.b. rise during a recession and thus increase the severity of the recession.c. rise during inflationary episodes and thus reduce the severity of the inflation.d. fall during a recession and
Automatic stabilizers “lean against the prevailing wind” of the business cycle becausea. wages are controlled by the minimum wage law.b. federal expenditures and tax revenues change as the level of real GDP changes.c. the spending and tax multipliers are constant.d. they include the power of
When the economy enters a recession, automatic stabilizers createa. higher taxes.b. more discretionary spending.c. budget deficits.d. budget surpluses.
Equal increases in government spending and taxes willa. cancel each other out so that the equilibrium level of real GDP remains unchanged.b. lead to an equal decrease in the equilibrium level of real GDP.c. lead to an equal increase in the equilibrium level of real GDP.d. lead to an increase in the
A tax multiplier equal to 24.30 would imply that a $100 tax increase would lead to aa. $430 decline in real GDP.b. $430 increase in real GDP.c. 4.3 percent increase in real GDP.d. 4.3 percent decrease in real GDP.e. 43 percent decrease in real GDP.
Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume(MPC) is given by the formulaa. MPC 2 1.b. (MPC 2 1)/MPC.c. 1/MPC.d. 1 2 [1/(1 2 MPC)].
Suppose the economy in Exhibit 12 is in equilibrium at point E1 and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to point E2 and reduce inflation bya. decreasing government spending by $750 billion.b. decreasing
Beginning at equilibrium E1 in Exhibit 11, when the government increases spending or cuts taxes, the economy will experiencea. an inflationary recession.b. stagflation.c. cost-push inflation.d. demand-pull inflation.
Suppose the economy in Exhibit 11 is in equilibrium at point E1 and the marginal propensity to consume (MPC) is 0.80. Following Keynesian economics, to restore full employment, the government should increase its spending bya. $200 billion.b. $250 billion.c. $500 billion.d. $1 trillion.
An expansionary fiscal policy may includea. increases in government spending.b. discretionary increases in transfer payments.c. reductions in taxes.d. All of the answers above are correct.
In the range of the aggregate supply curve, expansionary fiscal policy causes aggregate to increase, which results in a higher price level and a higher equilibrium level of real GDP.a. Keynesian, supplyb. Classical, demandc. Intermediate, demandd. Intermediate, supply
Which of the following is an example of expansionary fiscal policy?a. An increase in taxesb. A decrease in government spendingc. An increase in government spendingd. An increase in taxes and a decrease in government spending equally
Economic growth would be represented in Exhibit A-10 by a(an)a. leftward shift in the long-run aggregate supply curve (LRAS).b. inward shift of the production possibilities curve.c. rightward shift in the long-run aggregate supply curve (LRAS).d. movement along the long-run aggregate supply curve
Beginning in Exhibit A-10 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2. The economy’s path to a new long-run equilibrium is represented by a movement froma. E3 to E1 to E2.b. E1 to E3 to E2.c. E2 to E1 to E2.d. E1 to E2 to E3.
Based on Exhibit A-10 when the aggregate demand curve shifts to the position AD2 and the economy is operating at point E2, the economy’s position of long-run equilibrium corresponds to pointa. E1.b. E2.c. E3.d. E1 or E3.
Beginning from a point of short-run equilibrium at point E2 in Exhibit A-9, the economy’s movement to a new position of long-run equilibrium from that point would best be described asa. a movement downward along the AD2 curve with a shift in the SRAS1 curve to SRAS2.b. a movement along the SRAS2
As shown in Exhibit A-9 and assuming the aggregate demand curve shifts from AD1 to AD2, the full-employment level of real GDP isa. $10 billion.b. $4 billion.c. $100 billion.d. unable to be determined.
In part (b) of Exhibit A-8, the intersection of SRAS2 with LRAS indicatesa. an economy experiencing a recessionary gap.b. an economy experiencing an inflationary gap.c. that the economy is in long-run equilibrium.d. that the economy has an unemployment rate currently less than the natural rate of
In part (b) of Exhibit A-8, the intersection of SRAS1 with AD indicatesa. an economy experiencing a recessionary gap.b. an economy experiencing an inflationary gap.c. that the economy is in long-run equilibrium.d. that the economy has an unemployment rate currently greater than the natural rate of
In part (a) of Exhibit A-8, suppose the initial equilibrium is at real GDP level Y1 and price level P2. At real GDP level Y1 there isa. an inflationary gap.b. a recessionary gap.c. full employment.d. long-run equilibrium.
In part (a) of Exhibit A-8, the intersection of AD with SRAS indicatesa. a short-run equilibrium.b. a long-run equilibrium.c. both short-run and long-run equilibrium.d. that the economy is at full employment.
Which of the following causes a leftward shift in the short-run aggregate supply curve?a. An increase of goods prices while nominal incomes are unchangedb. An increase in nominal incomesc. An increase of full-employment real GDPd. An increase of personal consumption expenditures while the price
In the self-correcting AD–AS model, the economy’s short-run equilibrium position is indicated by the intersection of which two curves?a. Short-run aggregate supply and long-run aggregate supplyb. Short-run aggregate supply and aggregate demandc. Long-run aggregate supply and aggregate demandd.
The adjustment of nominal incomes to changes in the price level (CPI) is fixed because of thea. volatility of investment spending.b. existence of long-term contracts.c. complete information possessed by workers.d. All of the above answers are correct.
The intersection between the long-run aggregate supply and aggregate demand curves determines thea. level of full-employment real GDP.b. average level of prices (CPI).c. marginal product.d. both a and b.
In the AD–AS model, a point where the economy’s long-run AS curve, short-run AS curve, and AD curve all intersect at a single point represents a point wherea. real GDP is equal to its full-employment level.b. the conditions of short-run equilibrium are fulfilled.c. the conditions of long-run
In an economy where nominal incomes adjust equally to changes in the price level, we would expect the long-run aggregate supply curve to bea. vertical.b. horizontal.c. negatively sloped.d. positively sloped.
Which of the following explains why the shortrun aggregate supply curve is upward sloping?a. The quantity of real output supplied is inversely related to the aggregate supply curve.b. Nominal incomes are fixed.c. The capital-output ratio becomes negative.d. An increase in price will increase the
If nominal wages and salaries are fixed as firms change product prices, the short-run aggregate supply curve (SRAS) isa. vertical.b. horizontal.c. negatively sloped.d. positively sloped.
Which of the following would cause a decrease in the short-run aggregate supply curve (SRAS)?a. An increase in oil pricesb. An advance in technologyc. An increase in the CPId. An increase in the long-run aggregate supply curve (LRAS)
The full-employment level of real GDP is the level that can be produced witha. given technology and productive resources.b. frictional and structural unemployment equal to zero.c. cyclical unemployment equal to zero.d. both a and b.e. both a and c.
One reason for the upward-sloping short-run aggregate supply curve (SRAS) isa. a fixed CPI market basket.b. perfect knowledge of workers.c. fixed-wage contracts.d. the upward-sloping production function.
In Exhibit 11, assume the AE2 line is aggregate expenditures and $1,000 is full-employment real GDP. If the economy operates at a real disposable income of $600, there will bea. inventory accumulation of $100.b. inventory accumulation of $200.c. zero inventory.d. inventory depletion of $200.
In Exhibit 11, the value of the spending multiplier isa. 3.b. 4.c. 5.d. 2.e. 6.
In Exhibit 11, an increase in aggregate expenditures causesa. a movement down the aggregate expenditures curve from equilibrium real GDP of $600 to equilibrium real GDP $1,000.b. a movement up the aggregate expenditures curve from equilibrium real GDP of $1,200 to equilibrium real GDP $1,000.c. a
The equilibrium level of real GDP is $1,000, the target full-employment level of real GDP is $1,500, and the marginal propensity to consume is 0.75.The target can be reached if government spending isa. increased by $100 billion.b. increased by $125 billion.c. increased by $500 billion.d. held
If the MPC is 0.70, then the spending multiplier is equal toa. 0.70.b. 0.30.c. 0.14.d. 3.33.e. 5.
Assume that full-employment real GDP is Y 5$1,200 billion, the current equilibrium real GDP is Y 5 $1,600 billion, and the MPC 5 0.80.To bring the economy to a full-employment real GDP,a. a recessionary gap must be bridged by increasing aggregate expenditures by$80 billion.b. an inflationary gap
Using the aggregate expenditures model, assume the aggregate expenditures (AE) line is above the 45-degree line at full-employment GDP. This vertical distance is called a(an)a. inflationary gap.b. recessionary gap.c. negative GDP gap.d. marginal propensity to consume gap.
Assume the economy is in recession, the MPC is 0.80, and an increase in real GDP of $200 billion is needed to reach full employment. The target can be reached if government spending is increased bya. $20 billion.b. $200 billion.c. $80 billion.d. $40 billion.
Mathematically, the value of the spending multiplier is given by the formulaa. MPC 2 1.b. (MPC 2 1)/MPC.c. 1/MPC.d. 1/MPS.
When households’ marginal propensity to consume(MPC) increases, the size of the spending multipliera. also increases.b. decreases.c. remains unchanged.d. reacts unpredictably.
If the marginal propensity to consume (MPC) is 0.80, the value of the spending multiplier isa. 2.b. 5.c. 8.d. 10.
The formula to compute the spending multiplier isa. 1/(MPC 1 MPS).b. 1/(1 2 MPC).c. 1/(1 2 MPS).d. 1/(C 1 I).
The ratio of the change in GDP to an initial change in aggregate expenditures (AE) is thea. spending multiplier.b. permanent income rate.c. marginal expenditure rate.d. marginal propensity to consume.
As shown in Exhibit 10, if GDP is $14 trillion, the economy experiences unplanned inventorya. accumulation of $12 trillion.b. depletion of $14 trillion.c. accumulation of $2 trillion.d. depletion of $4 trillion.
As shown in Exhibit 10, if GDP is $6 trillion, the economy experiences unplanned inventorya. depletion of $2 trillion.b. depletion of $6 trillion.c. accumulation of $2 trillion.d. accumulation of $6 trillion.
As shown in Exhibit 10, equilibrium GDP isa. $2 trillion.b. $6 trillion.c. $10 trillion.d. $12 trillion.
In the Keynesian model, investment, government spending, and net exports are treated as autonomous expenditures, which means they are independent ofa. expectations.b. the price level.c. political processes.d. real GDP.
Which one of the following are the components of aggregate expenditures?a. Household consumption, business investment, government spending for goods and services, and net exportsb. Household consumption, business investment, government transfer payments, and net exportsc. Household consumption,
In the aggregate expenditures model, if aggregate expenditures (AE) are less than GDP, thena. inventory is depleted.b. inventory is unchanged.c. employment decreases.d. employment increases.
Using C to represent consumption, I to represent investment, G to represent government spending, S to represent saving, X to represent exports, and M to represent imports, aggregate expenditures can be represented bya. C 1 I 1 G 1 (X 1 M).b. (C 2 S) 1 G 1 (X 2 M).c. C 1 I 1 G 1 (X 2 M).d. C 1 I 1 G
An upward shift of the autonomous investment spending curve would be caused by a(an)a. decrease in the interest rate.b. more pessimistic business expectation.c. increase in real disposable income.d. increase in business taxes.
A rightward shift of the investment demand curve would be caused by a(an)a. increase in the rate of interest.b. decrease in the rate of interest.c. increase in the expected rate of return on investment caused by an increase in business confidence.d. decrease in the expected rate of return on
The consumption function is drawn on a graph with disposable income on the horizontal axis.Assume autonomous consumption increases.The effect isa. an upward adjustment in the vertical intercept.b. no change in the adjustment in the vertical intercept.c. an increase in the slope of the consumption
As shown in Exhibit 8, the 45-degree line representsa. autonomous consumption.b. real consumption spending.c. real disposable income.d. all points where real consumption equals real disposable income.
As shown in Exhibit 8, the break-even income isa. $2 trillion.b. $4 trillion.c. $6 trillion.d. $8 trillion.
As shown in Exhibit 8, the marginal propensity to consume (MPC) isa. 0.33.b. 0.50.c. 0.67.d. 0.75.
As shown in Exhibit 8, dissaving occursa. at $5 trillion.b. between 0 and $4 trillion.c. where disposable income is greater than$4 trillion.d. at $8 trillion.
As shown in Exhibit 8, savings occursa. at 0.b. between 0 and $4 trillion.c. where disposable income is greater than$4 trillion.d. at $2 trillion.
As shown in Exhibit 8, autonomous consumption isa. 0.b. $2 trillion.c. $4 trillion.d. $6 trillion.e. $8 trillion.
If the marginal propensity to consume 5 0.75, thena. the marginal propensity to save 5 0.75.b. the marginal propensity to save 5 1.33.c. the marginal propensity to save 5 0.20.d. the marginal propensity to save 5 0.25.
The relationship between MPC and MPS isa. 1 1 MPC 5 MPS.b. 1 2 MPC 5 MPS.c. 1 1 MPS 5 MPC.d. MPC 2 MPS 5 1.
The sum of the marginal propensity to consume(MPC) and the marginal propensity to save(MPS) always equalsa. 1.b. 0.c. the interest rate.d. the marginal propensity to invest (MPI).
The marginal propensity to consume (MPC) is the slope of thea. GDP curve.b. disposable income curve.c. consumption function.d. autonomous consumption curve.
John Maynard Keynes’s central proposition that a dollar increase in disposable income would increase consumption, but by less than the increase in disposable income, implies a marginal propensity to consume (MPC) that isa. greater than or equal to one.b. equal to one.c. less than one but greater
What is the vertical intercept of the consumption function that represents the portion of consumption expenditure not associated with a level of disposable income?a. Consumption interceptb. Disposable income interceptc. Autonomous consumptiond. Automatic consumption line
What is the title of the John Maynard Keynes’s book published in 1936 that challenged the classical self-correction economic theory?a. In the Long Run, We Are All Dead.b. Classical Economics Revised.c. General Theory of Employment, Interest, and Money.d. A Keynesian Approach to Economic Policy.
The school of thought that emphasizes the natural tendency for an economy to move toward a full employment equilibrium is known as thea. Keynesian school.b. supply-side school.c. noninterventionist school.d. classical school.
If the economy is experiencing less than full employment equilibrium, the Keynesian school recommends that the governmenta. do nothing to stimulate the economy.b. undertake fiscal policy to stimulate aggregate demand.c. undertake fiscal policy to stimulate aggregate supply.d. balance the budget to
The French economist Jean-Baptiste Say transformed the equality of total output and total spending into a law that can be expressed asa. unemployment is not possible in the short run.b. demand and supply are never equal.c. supply creates its own demand.d. demand creates its own supply.
The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment in the long run isa. supply-side economics.b. Keynesian economics.c. classical economics.d. mercantilism.
If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be aa. redistribution of wealth from borrowers to lenders.b. redistribution of wealth from lenders to borrowers.c. net loss in purchasing power for lenders relative to
As the price of gasoline rose during the 1970s, consumers cut back on their use of gasoline relative to other consumer goods. This situation contributed to which bias in the consumer price index?a. Substitution biasb. Transportation biasc. Quality biasd. Indexing bias
Deflationa. was prevalent during the oil shocks of the 1970s.b. will cause consumers’ purchasing power to shrink under current trends.c. has been persistent in the U.S. economy since the Great Depression.d. refers to none of these answers.
The base year in the consumer price index (CPI) isa. given a value of zero.b. a year chosen as a reference for prices in all other years.c. always the first year in the current decade.d. established by law.
During periods of hyperinflation, which of the following is the most likely response of consumers?a. Save as much as possibleb. Spend money as fast as possiblec. Invest as much as possibled. Lend money
Cost-push inflation is due toa. labor cost increases.b. energy cost increases.c. raw material cost increases.d. All of the above answers are correct.
Which of the following statements is true?a. Demand-pull inflation is caused by excess total spending.b. Cost-push inflation is caused by an increase in resource costs.c. If nominal interest rates remain the same and the inflation rate falls, real interest rates increase.d. If real interest rates
Which of the following can create demand-pull inflation?a. Excessive aggregate spendingb. Sharply rising oil pricesc. Higher labor costsd. Recessions and depressions
Suppose you place $10,000 in a retirement fund that earns a nominal interest rate of 8 percent. If you expect inflation to be 5 percent or lower, then you are expecting to earn a real interest rate of at leasta. 1.6 percent.b. 3 percent.c. 4 percent.d. 5 percent.
If the inflation rate exceeds the nominal rate of interest,a. the real interest rate is negative.b. lenders lose.c. savers lose.d. All of the above answers are correct.
The real interest rate is defined as thea. actual interest rate.b. fixed rate on consumer loans.c. nominal interest rate minus the inflation rate.d. expected interest rate minus the inflation rate.
Real income in Year X is equal toa. Year X nominal income Year X real GDP.b. Year X nominal income Year X real output 2 100.c. Year X nominal income CPIy100d. Year X nominal income 3 CPI.
Deflation means a decrease ina. the rate of inflation.b. the prices of all products in the economy.c. homes, autos, and basic resources.d. the general level of prices in the economy.
Suppose the price of bananas rises over time and consumers respond by buying fewer bananas.This situation contributes to which bias in the consumer price index?a. Substitution biasb. Transportation biasc. Quality biasd. Indexing bias
Which of the following statements is true?a. Deflation is an increase in the general level of prices.b. The consumer price index (CPI) measures changes in the average prices of consumer goods and services.c. Disinflation is an increase in the rate of inflation.d. Real income is the actual number of
If the consumer price index (CPI) in Year 1 was 200 and the CPI in Year 2 was 215, the rate of inflation isa. 215 percent.b. 15 percent.c. 5 percent.d. 7.5 percent.e. 8 percent.
Price indexes such as the CPI are calculated using a base year. The term base year refers toa. the first year that price data are available.b. any year in which inflation is higher than 5 percent.c. the most recent year in which the business cycle hit the trough.d. an arbitrarily chosen reference
Which one of the following groups benefits from inflation?a. Borrowersb. Saversc. Landlordsd. Lenders
Inflation is measured by an increase ina. homes, autos, and basic resources.b. prices of all products in the economy.c. the consumer price index (CPI).d. None of the answers above are correct.
Inflation is defined as an increase ina. real wages of workers.b. real GDP.c. the average price level.d. all consumer products.
Sally lost her job when her company went out of business because of a recession. This is an example ofa. frictional unemployment.b. structural unemployment.c. cyclical unemployment.d. technological unemployment.
Suppose the official unemployment rate is 10 percent. We can conclude without question thata. the same 10 percent of the people in the economy were out of work for the entire year.b. 1 out of every 10 people in the civilian labor force is currently unemployed.c. the same 10 percent of the people in
Which of the following is not a lagging indicator?a. Duration of unemploymentb. Stock pricesc. Commercial and industrial loansd. Prime rate
The government’s chief forecasting gauge for business cycles is thea. unemployment rate.b. real GDP.c. personal income index.d. index of leading indicators.
What stage of the business cycle immediately follows the trough?a. Peakb. Recoveryc. Recessiond. Depression
Which of the following is true?a. The GDP gap is the difference between fullemployment real GDP and actual real GDP.b. We desire economic growth because it increases the nation’s standard of living.c. Economic growth is measured by the annual percentage increase in a nation’s real GDP.d.
The increase in unemployment associated with a recession is calleda. structural unemployment.b. frictional unemployment.c. discouraged unemployment.d. cyclical unemployment.
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